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Retail sales of licensed Entertainment/Character merchandise declined slightly more than the business as a whole in 2010, dropping X.X% to $XX.XX billion in 2010 from $XX.XX billion in 2009. This compares to a decline of X.X% for retail sales of licensed merchandise across all property types between 2009 and 2010 (see TLL X/XX/XX; pg. X). The estimates are based on THE LICENSING LETTER Annual Business Survey, conducted in January.

While 2010 was not a particularly strong year for Entertainment/Character licensing, it was a marked improvement over the previous two years, when the sector posted declines of XX% between 2007 and 2008 and XX% between 2008 and 2009. These were among the steepest drops at a time when retail sales across all licensed properties and products fell precipitously.

The categories that declined most in 2010 were apparel, accessories, gifts/novelties, and footwear. For the most part, these are crowded sectors where primarily the top tier of properties (including Disney--now including Marvel--Sanrio's Hello Kitty, and some Nickelodeon licenses) succeeded at the expense of smaller brands.

The largest category for Entertainment/Character licensing remains Toys and Games, which accounts for XX.X% of retail sales of licensed merchandise for this property type. Despite the fact that certain licensed toy lines in particular did very well, including Star Wars and its spin-off Clone Wars, did not compensate for steep drops for other properties. For the year, retail sales of licensed Entertainment/Character merchandise in the category was off a significant X%; toy sales overall grew X%, according to the NPD Group.

Many survey respondents and other observers believe licensing will experience a stronger year in the toy industry in 2011, in part due to a number of new and expanded licensed lines being introduced.

The second largest Entertainment/Character category is Videogames/Software, which commands an XX.X% share but did not fare well in 2010, declining X.X%. This was due primarily to the struggles facing film-based licensed interactive games. While a number of book and children's educational properties have signed deals for interactive games of late, the formerly dominant film-licensing arena has been doing poorly.

Reasons cited by include the increasingly short-term and promotional nature of film licensing in general, and the fact that many film-based gaming titles are of poorer quality than other types of games. Game developers need X-X year lead times, at which point there is little sense of the content of the film, and in fact videogames that bear the least resemblance to their name-sake films tend to be the better games, since developers are free of the constraints of sticking to the movie.

Both Electronic Arts and THQ, big players in film-licensed games, have announced their intention to reduce the number of film titles they sell, or get out of that area of the business entirely. Also contributing to the change is a move toward casual games/apps which are less costly (and less time consuming) to develop and appeal to a wider demographic.

The top category in terms of growth was Health and Beauty Aids--up X.X% in 2010--with cosmetics, lip balms, fragrances and other HBA items all seeing increased activity. Food/Beverage and Consumer Electronics, which were the two strongest growth areas among licensed products overall last year, were fiat in the Entertainment/Character segment.

According to the researchers, the presence of a character made the children like the Sugar Bits cereal more, but not the Healthy Bits cereal. Overall, they liked Healthy Bits more than the Sugar Bits--and equally so with and without characters.

The findings were consistent regardless of parent's or guardian's educational level, the degree of media use in the household, or age.

Perhaps the most surprising aspect of the survey is that the kids liked the Healthy Bits name more than the name Sugar Bits, whether characters are present or not.